European Gas Surges After U.S. Rejects Russia Claims of Pullback

(Bloomberg) --

European natural gas prices jumped after two days of declines as the U.S. rejected Russia’s claims that it was pulling back troops from the border with Ukraine.

Moscow instead added as many as 7,000 military personnel to the area, senior U.S. administration officials said, without offering evidence to back up their assertion. Russia, which has said it has no plans to invade its neighbor, denied claims it has added troops.    

Global markets have swung this week with every twist and turn in the standoff between the West and Russia, affecting everything from energy and food prices to equities and currencies. European Union leaders will discuss the tensions over Ukraine Thursday at an emergency summit, while Group of Seven foreign ministers meet in Munich on Saturday.

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“Geopolitics remain an ever-growing force in the gas markets,” Christopher Louney, a commodity strategist at RBC Capital Markets, said in a report. “Russia-Ukraine concerns, tensions and risks remain high and we are not out of the woods by any means.” 

Benchmark European gas futures jumped as much as 8.9%, and were 6.7% higher at 74.50 euros a megawatt-hour as of 10:13 a.m. in Amsterdam. The U.K. equivalent contract increased 7.4%. Month-ahead German power rose as much as 5%.

Traders and European policymakers are also closing watching Russian gas flows into Europe. Supplies entering Slovakia through a key route crossing Ukraine are expected to remain below normal levels on Thursday after a recent decline. Flows through the Yamal-Europe pipeline to Germany have been halted for more than eight weeks.   

Still, Russia’s daily gas exports have rebounded this month after falling to a seven-year low in January, with European demand potentially buoyed by a drop in prices, according to Bloomberg calculations based on data from Gazprom PJSC.

Meanwhile, demand for gas to generate power is set to be limited as storms with high wind speeds are expected for parts of Europe in the next couple of days. Power generation from wind turbines are set for a record hourly output in Germany and the U.K. on Thursday, according to Bloomberg model forecast. The German Weather Service has issued a weather warning for the entire country. 

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